Entrepreneurship, Innovation and Adoption/ Diffusion. Dr. John Jatoe Dept. of Agric. Econ. & Agribusiness University of Ghana Legon

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1 Entrepreneurship, Innovation and Adoption/ Diffusion Dr. John Jatoe Dept. of Agric. Econ. & Agribusiness University of Ghana Legon

2 Lecture Outline Entrepreneurship (leadership, marketing & diffusion) The innovation process Intellectual property rights Intellectual property rights and development Technology adoption and diffusion Other influences & adoption

3 Entrepreneurship Entrepreneurs make things happen They are individuals who take a concept and convert it into a reality. A product, policy or institution. They become the champions of a new process, and they are engines of change. Entrepreneurship occurs in all areas of life. In business, academy, government and NGOs. Entrepreneurs are everywhere, in Wall street and the Sahel. Entrepreneurship can be used for good and evil.

4 Requirements of Entrepreneurs Entrepreneurs need a keen eye to understand economic, social, and scientific realities and the capacity to understand evolutionary processes in the future. They need to understand how institutions work, and individuals react in order to introduce activities and products that serve peoples need and that are sustainable economically and politically. Entrepreneurs also need dedication and commitments and the capacity to overcome failure.

5 Entrepreneurship and society To encourage entrepreneurship, society should tolerate failure and give people a second chance. Obviously, people need to pay for their mistakes, but if the payment is too high, people will not be daring or take risks. Effective legal system is essential for positive entrepreneurship

6 Marketing & leadership A leader may have to sell ideas, promote concepts, raise funds, recruit followers-which requires marketing. Champions - help spread the message, practice, product, etc to bring about transformation

7 What Are Innovations? Innovations are new ways to achieve tasks. Types of innovations include: Mechanical - tractors, cars. Chemical - pesticides. Biological - seed varieties. Managerial - IPM, extra pay for work, overtime. Institutional - water users association, patents, banks, stock market, conservation districts, monks. It is useful to distinguish between process innovations (new biotechnology procedures) and product innovations (Bt cotton).

8 The Innovation Process An innovation starts as a concept that is refined and developed before application. Innovations may be inspired by reality. The innovation process, which leads to useful technology, requires: Research Development (up-scaling, testing) Production Marketing Use Experience with a product results in feedback and leads to improved innovations.

9 The Innovation Process Figure 1. Typical steps in the life cycle of a new technology Research Discovery Development Patenting and Approval Production Marketing Adoption

10 Diffusion of Innovations: The Core Question How do consumers arrive at the decision to choose one technology over its alternative?

11 Diffusion of Innovations - Rogers

12 Diffusion of Innovations - Rogers Rogers: rural sociologist, son of farmers, interested in agricultural issues in US and developing countries: Categorizing the Adopters of Agricultural Practices (1958) Characteristics of Agricultural Innovators and Other Adopter Categories (1961) Diffusion of Innovation ( ) Rogers & the I School: Emphasis on diffusion as information-exchange among participants in a communication process (xvi preface 1995 edition) The diffusion of innovations is essentially a social process in which subjectively perceived information about a new idea is communicated. The meaning of an innovation is thus gradually worked out through a process of social construction. (xvii 1995)

13 Diffusion of Innovations - Rogers 4 elements of diffusion: Innovation (perception of innovation) Communication Channels Time Social Systems The Fable of the Keys an established standard can persist over a challenger, even where all users prefer a world dominated by the challenger, if users are unable to coordinate their choices.

14 Diffusion of Technology - Cowan asking both what interest such a consumer might have had and what sort of network might have existed at that time to bring a stove into a home. (Cowan, p269) Failure & Success are equally important to understand diffusion Stoves: past and present of diffusion (

15 Diffusion of Innovations - Rogers Importance of DoI research: Diffusion follows a pattern Importance of social networks ( strength of weak ties follows in the wake) Xiao et al. on Diffusion & Games ( The rich traces users leave in the form of social networks and interactions online have started to enable researchers to conduct large-scale studies of diffusion patterns p2) Attention to marginal populations & developing countries Work-in-progress

16 Diffusion of Innovations - Rogers Critiques to DoI: Innovation: what is it, exactly? Time: on/off? Long-term? Social Systems The problem of the network described by Cowan

17 Diffusion of Innovations - Rogers (self)-criticism of DoI (ch.3) Pro-innovation bias ( innovation should be diffused and adopted by all members of a social system, should be diffused more rapidly, the innovation should be neither re-invented nor rejected. p100) Individual blame ( If the shoe doesn t fit, there s something wrong with your foot p115) Time variable difficult to measure because it relies on recall Problems in determining causality ( Cross-sectional survey data are unable to answer many of the why questions about diffusion The pro-innovation bias in diffusion research, and the overwhelming reliance on correlational analysis of survey data, often let in the past to avoiding or ignoring the issue of causality among the variables of study. p123) Equality problem (esp. in relation to developing countries)

18 Technology Adaptation and Appropriateness Rarely is the same technological solution optimal everywhere. The value of an innovation depends on socioeconomic,climatic, and ecological specifics. Important innovative activities adapt technological solutions to specific conditions. Export of technologies across regions without adaptation may lead to negative environmental side effects and waste. A technology may have several versions to meet needs and capabilities of various users in a region, e.g., large vs. small farmers versions of a machinery. The establishment of an innovative capability starts with a buildup of capacity to support and adopt innovations and new technologies.

19 Induced Innovations Innovations respond to need and economic conditions. Inventors, investors, and researchers put effort into solving burning problems, and that leads to innovations. Labor shortages led to mechanized equipment. Drought conditions led to improved irrigation. Energy crises led to higher efficiency cars, bulbs. Farmers cooperatives were established during periods of excessive low farm prices. Environmental regulations trigger cleaner technologies. A tax on carbon will lead to improved stoves and power plants.

20 Various types of innovators In the past most innovations were introduced by practitioners. Even now practitioners are important innovators. They identify a way to meet needs. The scientific discoveries of the late 19th century gave rise to science-based innovations (Edison, Bell, Marconi). Major companies (IBM, Sony, Bell, Kodak, GM) built their own research labs. Public sector labs made important agricultural and environmental discoveries. Universities and start-up companies are becoming major sources of new innovations. The ownership of a technology and leadership in its applications move between organizations over time.

21 Incentives for Innovations Patents: Awards monopoly rights for years. Patent protection allows publication of research findings that leads to innovations. Patent rights (for certain applications) can be transferred. Patents are valid only where they are registered. Copyright protection: Pertains to books, brand names, and the media. Trade secrets: Protects against thefts. Plant breeders right: Allows exclusive sales of varieties and allows farmers to reuse seeds. Prizes: Awarded to winners of a contest for finding a technical solution to a problem. Indigenous knowledge is poorly protected.

22 Intellectual Property Rights and Development Investments in R&D and new products will be much lower without the expected monopoly gains. Local industry and foreign investors benefit from patent protection, as is already the case in India. IPR constraints may inhibit domestic companies ability to develop new products. Added IPR knowledge may lead to gains: Production for local markets does not require obtaining rights to patents that are not registered locally. Developing countries can trade access to bio-diversity for access to technology. They can reach special agreements with universities and companies.

23 Adoption and Diffusion of Innovations The use of new technologies spreads gradually. There is a significant time lag between the time a new innovation is introduced and when it becomes widely used by producers or consumers. Diffusion is the aggregate process of product penetration. It is measured by the percentage of potential users who actually adopt a technology. Diffusion curves measure aggregate adoption as a function of time. They tend to be S-shaped. Adoption is a decision by a specific individual to use a technology. Diffusion is aggregate adoption.

24 The S-Shaped Diffusion Curve

25 We distinguish among: Stages of Diffusion Early adopters: More educated, innovative individuals who gain from technology. Followers: The majority of adopters who see its success and want to join in. Laggards: Less-advanced individuals who either do not adopt or adopt very late and may lose because of the technology.

26 Adoption as Imitation Some explain the S-shaped behavior as the outcome of imitation. Contact among individuals is the driving force of diffusion. Profitability of the new technology, ease of use, and quality of technical support are factors that can enhance diffusion. VCRs, wireless communication, and Bt cotton, were technologies with a fast rate of diffusion, while personal computers and IPM had slower adoption rates.

27 Threshold Model The factors behind diffusion: Heterogeneity of potential adopters. The individual decision process aimed at improving well-being. Dynamic forces that make technology more attractive. Source of heterogeneity (size, location, land quality, and human capital). Decision criteria (profitability, well-being, risk minimization). Dynamic processes that drive adoption (learning by doing, learning by using, network benefits).

28 Application of the Threshold Approach Mechanical innovations: Tractors and cars are adopted by larger farms and richer families. In the case of a tractor, L = size of farm a = saving per acre P = cost of tractor Adopt if P > al L = P/a critical size. Critical size declines because P declines. As a result of learning by doing, a increases as a result of learning by using.

29 Other Examples Water-conserving technologies (sprinklers) increase water-use efficiency if: With traditional technology, 50% of applied water is actually consumed. 75% is consumed with sprinklers. It results in higher yield and water saving. Technology adoption occurs: In sandy soils and hills where the traditional technology is especially inefficient. Locations where the price of water is high. With high-value crops. Green Revolution technologies are high-yield varieties that require complementary inputs (fertilizers and sometimes water). They are adopted when: They have high yield and cost effects. Farmers have access to credit.

30 Adoption and Risk Impacts of technologies are unknown. Risk considerations slow adoption. One approach in assessing a technology: Maximize Expected benefits-a risk where a is a coefficient of risk aversion. Risk may be measured by a variance of profit. Policies that reduce risk include insurance (crop insurance enhances adoption) Diversification. An alternative approach: Select the technology with the highest benefit given that it yields minimum required benefits at the worst case scenario. This approach aims to assure sufficient resource during drought. Good inventories, banking systems, and asset accumulation possibilities reduce the need for protection against risks.

31 Adoption, Credit, Location, and Education Lack of credit and high cost of credit are major impediments for adoption. Poorer consumers and farmers may be more constrained by risk and credit constraints. Adoption may be slower at far away locations because of less access to information and sources of technology, higher cost of inputs. In some cases, however, early adopters are at distance locations (if technology reduces transportation costs). Adoption requires a high learning cost - more educated individuals tend to be early adopters. When the technology is simple, sometimes less sophisticated individuals adopt first. Nature of technology mattters*

32 Adoption and Policy The government may enhance adoption through positive incentives such as: Price support of products produced with technologies. Extension and education. Credit subsidies. Insurance schemes. Cost-sharing arrangements. Negative incentives Regulation against existing technologies (pesticide regulation enhances biotechnology). Higher cost of inputs used intensively with existing technologies (water price hikes). Key elements of environmental policy are incentives to Induce innovation of greener products. Induce adoption of cleaner products.

33 Timing of Adoption Sometimes it is worthwhile to wait and see and not adopt immediately when benefits of technology exceed costs. Cost of technology may decline over time. You should wait if the reduction in technology cost> than the cost of waiting. When a technology has uncertain irreversible outcomes- waiting to learn more is prudent. Waiting prevents the opportunity of learning and improving a technology- the gains from waiting should be compared to the costs.

34 Government & adoption Governments and Ngo s are promoting and encouraging adoption of technologies Government is using incentives, initiate advertisement and promotional campaigns. Extension is an institution used for education and support of diffusion processes. Extension should complement private sector marketing of new technology -not replace it. In some cases extension s clientele are mostly technology providers-not users Extension role is to provide balanced assessments of new technologies not advocate them. Extension role is adaptation of technology Extension may initiate and implement institutional innovations

35 Resources Zilberman, D. (n.d) Technology, Innovation, and Entrepreneurship. Department of Agricultural and Resource Economics, University of California, Berkeley Rogers, E.M. (2003, 1995). Diffusion of Innovations. The Free Press